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funding provided by these funders:. >> from our studios in new york city, this is charlie rose. >> rose: jay fishman is here, he is is the chairman & ceo of travelers. it is one of the nation's leading providers in property & casualty insurance. travelers has also been a
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leader in corporate america to help educate the public at america's debt crisis. the company recently partnered with public television on a documentary underscoring the urgent challenge ahead it is called overdraft and here is the trailer. >> some people understandably say this is sort of dry subject, dollars, cents, debt. what's it mean to me. if i read the mathematics right it means everything. >> i really genuinely believe this threatens the fundamental economic security of the united states. >> a lot of the democrats are mad because they say well, this is mostly caused by the republicans. without cut taxes and increased spending. the problem for the democrats is that if you look at the next ten years, most of it will be caused by things we care about. >> all of us are invested in this democracy. we are to the going to have parts of our community
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succeed and parts fail. if government fails, we all fail. >> we don't trust government. but we need government. and government is us, when you come right down to it. those folks in washington weren't landed there from mars. they were elected by us. >> it's a complex problem. people want quick answersment but the fact is that there aren't quick answers. >> these aren't things that can be fixed in election cycle. and the question is do we have the political leadership that is willing to invest that way. >> rational thinking leads to one thing, conclusions. and conclusions are not going to solve the debt problem. emotions on the other hand leads to another thing, action. okay. and we need to take action about the debt in the u.s. we need to change. >> we're going to pass on to our kids a less prosperous nation where they will have a lower standard of living, a massive debt they can't afford to pay off and therefore less secure nation. >> i'm to the giving up on democracy. i don't know what the alternative is.
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if you say a democratic government can't solve this problem, then you are saying we need a dictatorship? i don't think so. >> rose: i'm pleased to have jay fishman at this table for the first time, welcome. >> thank you, charlie s so good to be here. >> rose: so just pick up on overdraft, what's the urgency? and why hasn't the government, washington responded to something that most people agree stands in the way of america's economic growth and health? >> so let me size up the issue in just a few numbers. this discussion has been lots of words, precious few numbers. the baby boom generation of which i'm a member is moving in exorrably into that 65 and older time frame, between 2000 and 2010, 55 to
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64, that population group grew by 75%. and they are about to move into the what we come to refer to as the entitlement program. here's the numbers. last year social security, medicaid, medicare was a trillion 500 billion. 1.5. it will then begin to march up and by 2020, which pick that because it is a nice round number it will be 2.5 trillion dollars, every year, every year, a trillion dollars more every year as these programs begin to respond to this population boom. and that's going to create some real challenges for us. and people understand there's an issuement think don't think they understand how urgent it is and the fact is that time is really becoming of the esence. that's why we got involved in this. >> rose: we building? >> travelers. >> rose: your company. >> that's right. we, it was september of '08 so a long time ago lehman
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brothers went bankrupt. and there was lot os of discussion in corporate america about uncertainty. and that was what was keeping corporate leaders from investing. and i am one. i have 30,000 employees, and we manage business that looks to the future. that's what we worry about in the insurance business, was's the future going to be. and i couldn't put my finger on what that uncertainty is, and that lead us into a deep dive into the numbers. that is who we are. we are numbers company, very data oriented. and we did a deep dive. and the numbers are-- are stunning. and i don't use that word lightly. but it raised to me a real sense of urgency to become an advocate, an advocate at the very least trying to help people understand the size of the issue and what confronts us. >> rose: so what has to happen? >> well, everybody will have their own political and social view, and i have my own. we are a democracy and i will go with the 51% wherever it leads us. but i believe those three programs are part of the
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american fabric. i think they-- i think they-- . >> rose: social security dns social security medicare and medicaid, i think they are very much a part of the american fabric and it is a challenge to us to figure out how are we going to finance that. >> rose: what is the change that you recommend? >> so what i would do, and again everybody will have their own view, is first with respect to social security, i would means test it much more aggressively than we do now. that means including not only incumbent assets. >> rose: which means how much you get depends on how much you need. >> and that's what the program was designed for and we should return to its roots. and so that-- . >> rose: you would excuse some groups that just come in, whenever they began to make changes like that means to have something they say, no one who is to you getting or who got it. >> yes. we're if the going to pull the rug from under people that relied on that promise, absolutely. this has to look forward. and by the way, the urgency is it the more forward we look the more the baby boom generation moves in the less influential our changes are. so it's urgent. so i would means test it i
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would incorporate the change cpi change to adjust for inflation to a more reasonable framework but i would drive the benefit hard to the people who really need it. without question. part of the fabric. medicare i think there's a couple of things, it's really a complicated issue but we're going to end up with some more aggressive managed care approach to medicare. we're going to, as most of us in the private arena, we have insurance companies that pay for some things and they don't pay for others. we're going to have to get aggressive about figuring out what therapies make sense, where the dollars should be spent. we're going to have to manage it aggressively. i hate to fall back on fraud, waste. but the estimates are are $ 50 billion a year in medicare go out to fraud, waste and mismanagement. so taking that responsibility seriously. because i personally believe that if that program is crit k58ment access, being able to go see a physician, to get into a hospital when are you sick when are you old, that's just a crit k58 part of without we are. >> rose: did the obama health-care reform address that? >> i think it made actually the economics a little bit
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worse, but it moved us more in a social direction. >> rose: made access better and economics worse. >> that's correct. and we haven't really dealt with the economics. >> rose: it really only dealt with access. >> that's right. and lastly on the medicaid front because it is really driven to indigent families, very complicated medical issues, i would leave that one to experts. it's not the biggest portion of the cost. it's medicare and how it relates. and then secondly social security. also in medicare, i would be, for one for raising medicare tax, i have no problem with that. this is, we're talking about, again, something that is part of the fabric of who we are as americans. and you can't just take what's good and not feel accountable and responsible for paying for it. and i think that goes with it. >> rose: it was said at the time of passage and argued by the obama administration that the health-care reform put forward by him was deficit neutral. >> i think we're going to find out. i think we're going to find out what demands, it's also
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interesting to figure out what demands this new group will put on the medicare system. the other interesting part about all this, and we'll see this rumble through the system too, health-care costs are largely fixed. their's institutional. it's hospital beds, mri, equipment and-- the fact that an individual gunt see a doctor may lower medicare costs, but it doesn't lower health-care costs. and if we squeeze medicare costs enough, what will happen is the providers, the hospitals and the rest will ultimately have to change their model because it won't be able to respond. so we're at the beginning, i think, of some really structural changes in the health care environment. and we'll see where they end up. >> rose: and washington is not dealing with the issue. >> no, not candidly not well. >> rose: can't get beyond-- you know-- recently it was able to extend the meddle-- middle class tax cuts and not, tend the tax cuts for people who made $250,000 household income. >> and good but not
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responsive to the issue, right. the issue of whether tax rate was go up on wealthy is an interesting one. it's certainly politically charged. but it contributes over ot ten year period round number 6 to 700 billion. barely touches the issue. and so the issue didn't become how do we deal with this intermediate term crisis, it's not long term any more i believe it's intermediate term, it's how do we deal with this fiscal cliff of the moment. >> rose: and even newt gingrich said it is not the place republicans ought to make the fight because in the end they will do something. but if it doesn't happen, then people like you and others will descend on washington to force some result which will not be-- you know in the end there will be a result to do something about the debt. >> sure, it's unthinkable that we would default. >> i done mean unthinkable meaning you can't contemplate it, it's not in the realm of possibility. the notion that a maturing treasury bill that someone holds would not be paid in full is impossible. >> just impossible. so i -- >> including the-- it has
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for the american economy and the american word around the world. >> i think we've taken a serious hit to the prestige of the american financial strength, all right. and it comes from a few things. it comes from the first debate about the debt limit. it comes from the way we handled fiscal cliff. we have become a nation that responds to a deadline, only to a deadline. and at least so far we have been patching it along the way. and so we create more deadlines. i mean the sequestration was created because we couldn't get through simpson bowles. >> rose: bowles simpson, a very good effort. >> yes, yeah. and i think directionally a sound one. by the way i think the dom initchi rivlin which got much more coverage was in many respects also very thoughtful at this and really dealt with it in the broadest framework. just an example. we talk about cutting spending. one of the things that came
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out of the diminici-rivlin commission was that if we held, if we held defense spending flat, not cut it but just held it flat for five years and then let it grow with gdp which is what you do if are you in a business, would you look to gdp. and if we did the same thing with discretionary expenditures, the savings over the time period is now $700 billion. we don't even have to have-- . >> rose: that much. >> no, that's not bad. that's beginning to chip away at it. but $700 billion without having a discussion of what has to get cut simply making a commitment to maintaining it flat is fascinating to me. and that really just shows that the political discussion has pushed to the extremes. >> rose: the other thing that you care deeply about is leadership. tell me, and paul volker say hero for you. >> yes. >> rose: former chairman of the federal reserve when he basically attacked inflation and said we're going to -- >> yeah, the only thing worse-- . >> rose: and understanding that he was going to have
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to-- a very, very tough year or so for the economy. >> and, indeed, the beginnings of that reagan term were problematic, right. that was-- i mean paul volker really i think understood that the only thing worse that fixing inflation was not fixing it. it was that corrosive. >> rose: and ronald reagan probably understand if you are going to do it do it early in your term so that by the time f it works, you will have something positive to point to and say yes, i know how bad it was. i know you turned against me, however, we got it under control. >> and he pushed prime rate above 20%. and it caused a meaningful recession. the last time unemployment was above 10% was in the course of that recession. >> rose: but it's leadership of that kind that paul volker that you believe is necessary. >> i do. and-- . >> rose: but where is ben bernanke, who has the same job volker had. >> yeah. >> rose: where is he? >> well, volker at the time had the authority to do what had to be done this is not in ben bernanke's bailiwick, this is in congress and the administration. >> rose: agreed. at's not a monetary issue.
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>> that's right. to me, in this case leadership is about articulate a plan. show me where we're going. and me as a citizen, show me where we're going and show me whyment and then fight to take me there. but show me a plan. and right now-- . >> rose: i would-- show me a plan, tell me what my responsibility is, and we go together. >> we have been a nation of shared sacrifice for so many years. you know, we've gone to war. we think about the next generation. people often say to me what is the thing i worry about the most. the thing i worry about the most is as we as a nation lost our focus. >> rose: isn't it what we have done, we have not acted with-- we have-- first of all we have not been a saving economy, we have been a consuming economy. >> all about today. i want the next gizmo. >> rose: we want a government, we don't want to pay for it reasons right. >> rose: it's all those things that are now coming due. >> yes. and largely because of the demographic shift. question manage to make this work for as long as the workforce made it work but now we won't.
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and i do think that this is time for an acknowledgment of the issue, step number one. almost like a 12 step. show me the numbers. and that's why we did overdraft. show me the numbers, two. >> rose: recognition. give me a plan to your point, tell me what i have to do to contribute and i'm in. at least that's been the american way so far. i hope we haven't lost that. >> rose: how is the way you run travelers different from the way aig was run or the way that the berkshire hathaway insurance companies are run. >> well, couldn't pick two different, at least two different issues on the spectrum. first let me start off with warren who really is remarkable guy. i know you know him as well. he's been here, in fact. warren runs his business very smart and very thoughtfully. it is predominantly, though, an insurance company that generates capital for an investment vehicle. >> rose: allocation. >> and that's his philosophy
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for doing business. and he has been remarkably successful at it. we don't think of ourselves that way. we are-- . >> rose: that's a very basic different philosophical. >> enormous. we're not warren buffett. we're not-- we don't-- . >> rose: you have to be warren buff tote have that attitude. >> capital, you have to have the intellectual capital. you have to have the financial capital. you have to have-- there's a lot of things that he has that we just don't. and so we can't possibly compete with that. >> rose: rather than allocating the capital that comes in. >> right. >> you are basically taking and making very conservative bets. >> very much so. and so we are an insurance company first and foremost and we take only that amount of investment rising that we need to be a successful insurance company. >> rose: so therefore in good times will you not be as strong and in bad times will you be better than everybody else. >> so it worked pretty well these last few years. we made a decision. you asked about aig. we made a decision in 2004 that what you were getting, what you were being paid to hold what we perceived as risky assets was not
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sufficient to hold them. and so we stopped. and the number that i use is that the difference in yield which we know then fannie mae 10 year bond and a residential subprime structured bond rated aaa was a quarter of one point. that's all it was was a quarter of a point. the fannie pay bonds had the implicit guarantee of the u.s. government, that's worth something testimony had the experience and history of knowing how fannie mae securities work and run. the subprime stuff had been around for an hour and a half. we thought it was worth more than a quarter of a point so we stopped buying. >> rose: there is also this about your career at travelers. you work closely with sandy weil. and you left. >> yeah. >> rose: to his great disappointment, to go run another company, which later was bought by -- >> yeah. >> rose: now what was it that propelled you to leave. because you said the most amazing thing. that most people don't have the capacity to do. you said i'm not-- ready to leave-- to lead citigroup, i'm not the guy.
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>> it's absolutely true. >> rose: that's a hard judgement to say or was it not at all it was just so obvious to you that -- >> yeah, self-examination, critical part of, i think, growth and maturity. and i hadn't had sufficient experience in lots of those business that gave me the confidence that i could be accountable for them. >> rose: really. >> i didn't have it. i asked myself a long time was i concerned about my level of intellect. did i not think that i was smart enough. and that didn't concern me. but i ultimately concluded that if you said to me you're responsible for this business and you've not had exposure to three quarters of it, but somehow manage it and do good things are for shareholders, i didn't have the confidence that i could do it and once i didn't have the confidence i could do it, it was then time to go. because i wanted to run something myself. >> rose: you are the guy that went to hank paulson, some others did too. >> yeah. >> rose: and said don't bail me out, i don't need. >> i was worried it would be impose and the whole industry through aig. it was getting there. and the insurance industry, i wanted them to know that aig was different. certainly from us. and we didn't do-- in the
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financial products business that aig had where they rented out their credit rating, that's what they z that is the most precious asset that we have. and candidly, i am just being honest with you, it never even occurred to me to do it i look back on that and i asked myself was it because i wasn't sufficiently sophisticated to see it as an alternative that i rejected. or was it because i think about my business in a certain way that it didn't even occur to me. it never occurred to me to do it and when i saw what they had done it was eye-popping. eye-popping. >> rose: eye-popping. >> yeah. >> rose: because you it never imagined it. >> couldn't imagine that you would-- i mean aig-- . >> rose: why do you think they did it? >> you know, i think that you asked about leadership before. and i get asked a lot about financial crisis and why. i-- my experience, anyway, has been that most people in organizations try their best to do what the leadership tells them to do. they try really hard. and so that puts the responsibility on leadership to make sure you know what
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you're asking for. because employees are going to do their best to do it. >> rose: you want to motivate them but not set impossible odds so that they will have to stretch -- >> they will respond. they will respond. you said grow, we got to grow, you got to grow. sometimes you can. sometimes you can't. you have to have enough understanding of the business to know what to ask your folks to do. and-- and that, i think s such a critical element of leadership. when you look at the banks that did well, they behaved in a certain way. and i don't think it had anything to do with compensation or the way people were paid. leverage was critical in that arena. the banks that did well had relatively low leverage. the banks that didn't had stunningly high leverage. when you leverage your assets 50 to 1, your equity 50 to 1, a 2% decline in your asset value wipes you out. you better be right and you better be right at the right time. and that's a real challenge. >> rose: the bailout of aig is working? >> real well, ben is a hero, i really believe that. i wouldn't-- how do you hold
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people together. how do you hold the human capital there to be engaged and involved and feel good and continue to work and go out and serve customers and clients, and he made really smart business decisions. but whatever he did from the human side of the news was really remarkable there that he held that police together. oh, yeah, i think he's great. i think he's great. >> rose: you're also chairman of the new york city ballet. >> yeah. i'm laughing-- . >> rose: is that because you always had a lifelong interest in ballet or somebody in your family did or-- or they just needed somebody to make sure that their finances didn't get out of whack. >> i was asked to come in and do exactly that. my mentor for many, many years bob lipp has been on the board for 30 order years and bob said come on, help us out. and i am excited about it and it's a new experience. and great fun. and you know, something new to do. >> rose: thank you for coming. >> great pleasure to be here with you. >> rose: the film is called "overdraft"
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>> rose: adam posen is here. he is the president of the peterson institute for international economics. from 2009 to 2012 he has a member of the bank of england's nine man monetary policy committee. he was an early and often outspoken advocate of quantitative easing measures which were eventually a dad. in december an article about his time at the bank of england appeared in "the new york times" magazine. the title was, and here it is, god save the british economy. what an austerity experiment can teach the united states and the rest of the world. i am pleased to have the author of that piece adam posen at this table for the first time. welcome. >> thank you for having me for the first time. >> rose: so the british economy needs god. >> well, it needs something. and it's getting too little of good policy and too little of exports. so it needs something. >> rose: so what did you do there? >> and so the job i was in once i was a ponted is to once a month you meet with the other members of the committee, takes two days. you debate the state of the
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economy. you debate what you think is the effectiveness of the measures you've already taken or not. you think about and speculate on what's going to happen next both internally and externally. and then you say okay, should we change policy to adapt to that and then for the weeks in between, you're ideally doing economic thinking, talking with business, getting briefings from staff, from outside people, and just generally very concentrated on what are the challenges facing that economy. >> rose: did you find yourself in the majority or the minority? >> very much the minority for a good chunk of my time there. so when i got there, i got there after the height of the crisis. >> rose: right. >> so 2008. >> i was actually there in mid 2009. and as many of your guests have spoken about, you know the high drama days of lehman brothers or the bank running-- i was there after that when things were just bad. and the banking system is under repair. and so it was a little less frantic for me. for the first few months i was there the bank of england was continuing with
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keeping rates low and buying a few bonds. and i supported that. i was with the majority. in the course of 2009-2010 a bunch of members on the committee got convinced that there was a recovery under the corner. and that inflation-- inflation was a very real risk and so they wanted to stop doing more. and they even talked about raising rate, in other words, trying to slow down the economy out of fear of these things. and i came to the conclusion this didn't make any sense to me. it didn't look like what was happening with the data, didn't look like what was happening in history like this. hi worked on japan in the '90s. didn't look like this. so i started advocating for and voting for the bank to do more aggressive measures. quantitative easing sort of the heading of central banks saying we cut interest rates to 0. we need to do more to pump up the economy so let's buy stuff. >> rose: so the idea stimulate the economy so there will be more demand. >> exactly. and then not just more
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deband-- demand, although that is the primary vehicle, more confidence. >> rose: right. >> and more liquidity. that banks and people aren't all sitting on pun because they're scared there wouldn't be money available and that makes people more willing to take risks and spend or invest. >> rose: and how many members of the committee? >> there are mine members. >> rose: and how often was it 8-1. >> for me it was 8-1 against me 12 months in a row from october 2010 to october-- . >> rose: so nobody agreed with you? >> well, let's be a little gentle about that. there were a couple of people who were voting for raising rates and the majority of the committee didn't agree with them either. the governor of the bank of england who is the chairman of the committee, analogous to being chairman of the fed, sir king. >> rose: soon to be replaced. >> his second five year term ends in the summer. >> rose: right. >> and he was on the substance, i think probably sympathetic to where i was. certainly in the discussions. but understandably he is willing to stand for principles and unlick the
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fed he can lose a vote and nothing terrible happens but it wasn't like he wanted to be on the losing end of a vote every time. >> rose: here is way want to do. i want to make you a professor for a moment. >> sure. >> rose: so we want to understand in as clear way as we can what are the two opposing views here. because as you know george osborn comes to this program. >> i watched that. >> rose: paul crugman comes to the program to talk. a whole range of people with different ideas about the economy. but it's a creation signed of issue pause we have an economy not growing as we want it to in europe here, different kinds of issues. but what are the basic ideas in conflict. >> you are right to focus on that, that is what adam davidson who did that "new york times" article tried to use me to illustrate. there were two-- there are certainly going back to the 1930s. there are two ways of looking at the economy when it underperforms for a long period. one is to say something real is going on here. there's been too much regulation, or too much debt. people have misbehaved.
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there's been corruption. people, you know, spend on their credit cards, get plastic surgery and took out home-equity loans to build two story dog houses. and until that excess works its way off the economy, until people eventually write-off those losses, until the resources that were in those industries like mortgage, people issuing mortgages get out of that, their mortgage issuing businesses go out of business and find employment somewhere else, there is nothing you can do about it. and in fact if you tried to do something about it like public spending or loose monetary policy, you're going to make things worse. because then you're interfering with people's incentive to start behaving right, to take their losses and to move on. you're keeping companies that should go out of business open because things are so easy. that is the essentially the market, what is called real
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business cycle or classical view. and that was the view that was held in the 20s and 30s by like herbert hoover and as treasury secretary andrew melon and to some degree that's the view held by some people in the u.s. congress, some people at the fed. the alternative view-- . >> rose: just before we leave that some people in the fed, people know people in the congress. are you talking about mainly, you know, people who -- >> i'm talking about republicans who are-- were very much opposed to the stimulus package and who are very suspicious of the fed's efforts to buy bonds and cut rates. >> rose: and part of the reason is they believe that there's too much spending and too much deficit and that is a-- has a negative effect on the growth of economy. >> yeah, yeah. they believe that. but there are a number of people who are more moderate who care about the debt and deficit in the long term but don't say that in the short term you need to cutback. >> rose: but that's the bake point. >> yeah. >> rose: in terms of what you do in the short term
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versus the long term. >> exactly. >> rose: a lot of people understand what the deficit means or the debt means to a nation. and what its gdp as a part of debt-- ought to be. and where does it become in dangerous levels. >> right. >> rose: yet at the same time they know if you go after it in a rigorous way you will restrict growth in the near term and you what need in the near term is growth. >> you've said it very well. and that's the other side of the argument. that would be the larry summers paul krugman, peter or ak-- orszag, people like me, there is range there is variation, but essentially that the reason the economy is not growing is because people have had this huge shock to confidence. there's been financial disruption. the lack of spending and caution feeds on itself so i get a haircut less often so my barber spends less at the movies so there is less money at the movies. so the kid who sweeps up the movies gets let go from his job, so, et cetera, et cetera, et cetera. and then dow it on a bigger scale, the government is cutting back, tax revenue does go down, it cuts back,
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then there's fewer cops on the street, fewer people spending. this kind of thing which is often referred to as keynesianism because after the great john maynard keynes came up with it says it's not a supply problem, it's not people made terrible mistakes or if they made terrible mistakes they are rectifiable. that is not the real issue. the real issue is you are in this downward spiral, if everybody cuts back that induces everybody else to cut back. government cuts back too much, it indices private sector to cut back. people get more scared. they cut more. and so the idea is monetary policy and if monetary policy isn't enough, fiscal policy has to push up demand, make up for that cycle of fear until things get back to normal. so those are the sort of two things. the real versus the monetary. the you have to suffer for your sins versus you have to stop the panic. those are the two schools. >> rose: are you in favor of stopping the panic. >> absolutely. >> rose: and not suffering for your sins right now. >> it's not a morality play. if you want a morality play we can do lots of putting bankers in jail and things
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like that but it not at the macro level, nobody is being rewarded. >> rose: but most people looking at the american economy understand we need entitlement reform. >> uh-huh. >> rose: and they it ought to be on the table. >> absolutely. >> rose: over the long term we have to deal with these issueless otherwise the structural issues will consume us. >> yes. but it tends to be exaggerated, i think, in two sense. one is obviously we have to meet our debts. but the first is we're not greece. we're not japan. even though we've run up-- . >> rose: our overall economy is much stronger and the am of debt we racked up is less. we have racked up a lot. mostly because we have a combined wars and tax cuts over the last decade. >> but it's not, again, it's not one of these countries-- the secretary thing is just real quick, the secretary thing is when you say entitlement reform it actually kind of confuse the issue. we have mesd up health care system, both public and private whose costs are rising out of control. if we could get that under control, then everything else becomes solvable. but that's a reform issue.
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it's not just about medicare, not just about governmental though it's part of it, it's about the fact that our health-care system is messed up. so it's not entitlements per se. >> rose: david brooks wrote a column about that recently, with the idea that you know, that the critical issue about america's economy has to do with health care. >> for the long-term, absolutely, absolutely. >> rose: and it's growing and -- >> yeah. >> rose: this number interests me. what is the appropriate percentage of debt to gdp in this country, is it 75? >> there's sort of two answers to that. one is countries generally get into troublesome where above 100%. >> rose: yeah, that's greece. >> well, greece is like 150, 180. >> rose: okay. >> but generally you get into trouble when are you something above 100. some people, there's a couple recent authors said 90. some people depends how much is foreign held. rule of them you get above 14-- 100% it is hard to make the statements. the second thing slightly more technical but the best way to think about it, you
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can run deficits as long as your economy is growing, you can run deficits as long as what you are spending it on on average has a positive return. so what's the debt to gdp ratio that makes sense is the one that is stable. that at a given level of growth it's not going to keep growing explosively. imagine you have a rotating credit card account. it's probably not the best idea to always be paying interest on $10,000 but on the other hand if it is an auto loan, a student loan, a fixed amount, and nobody is charging you extortion at interest, you can carry that you just don't buy three cars, you just don't keep going to school. so essentially that's the answer. and we have people at our institute, peterson institute, like a man named bill klein who have done calculation on this for the u.s. you can probably stabilize it somewhere in the 80s. might be better if we are in the 70s but can stabilize in the 80s. >> rose: that is what we are looking to do from the near term, to stabilize. >> so it is not growing explosively and paying pore interest. >> rose: and continue a downward trend. >> when i talk about stabilize it means it has to
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be downward trend in short term bauz otherwise debt piles up but it didn't mean you take it to 0. it means you take down to something that you can keep paying for as, roll it over, pay for it as you grow. i mean again, it's like anything else. depends what you use the debt on and how much of it. debt is not inherently bad. too much debt is inherently bad. >> rose: so what's happening in britain. because we hear much about the decision bit cameron government. >> yes. >> rose: and george osborn the chancellor. >> uh-huh. >> rose: to say to the citizens of great britain and the united kingdom, we need to tighten our belt. >> right. >> rose: we need austerity. >> right. >> rose: we need to do that because it's good for us because it will get our economy on the right track once got it. and there is why shall did --. >> rose: sounds good to me, what's wrong with it. >> this is why i think it's important. because it is not just something for britan which of course matters forth 60 billion there and its friends but it matter because this san arc with you hearing it from erm germany, europe and the u.s.
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and why it doesn't-- . >> rose: partly because that's been the economic model they have been work on and their economy is better, germany. >> rose: . >> germany economic model is another topic but it has been looking good for the last three years, in part because they crushed wages for ten years. and that's not exactly the way you want to succeed. >> rose: okay. >> u.k.. >> rose: and they built up an export machine. >> they built up an export machine but part of the way they didn't it wasn't because they had great stuff, part of it is, and part of it is because they kept reducing the wages of their working people. you know, that's fine. it is one way to go. but it's not a sustainable source of growth. >> rose: right. >> u.k., austerityity, why did cameron and osborn say this. i mean there is sort of my understanding of why and then there is their argument. so their argument is we, the u.k. has in line with what i said was the first form of argument. the u.k. is fundamentally overspent. there's no way we're going to earn enough in the coming years to pay off what we spent. and as long as that debt is there, nobody is going to want to do anything and nobody is going to want to
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invest in us. and there is always a risk people will get scared we'll end up like greece and interest rates go up and what little investment there is in the u.k. will disa freer-- disappear. so we have to make a big down payment. we have to start paying now. start in the public sector, but also make the households pay off, and thereby get ourselves back on to the balance sheet, balance situation. why is this wrong? it's wrong bunch of reasons. first reason is the actual prospects forth u.k. to pay you have its debt are not worse in the future future than now, maybe a little worse than a few years ago but not hugely worse, they are vastly overestimating the problem. second reason is it's a miss fake is going back to what you said at the start, charlie there say short-term feedback that when they do this there is slowing of growth now. now if it slows growth only a little and are you paying off a lot of debt, on balance that can be okay. if it slows growth a lot, so much that you are falling hand on your debt payments it becomes self-defeating. and that's exactly what has happened. and the third thing is markets aren't stupid.
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markets are occasionally a little annoy but they're not stupid. and they realize this. they a zsd the u.k. and said the real threat isn't they are going to default. britain hasn't defaulted in 300 years. the real threat is they are going to mess up their economy so much that they will not be able to pay at a good rate because they're not growing. so every time chancellor osborn or the prime minister in the u.k. says well, we're going do the following new austerity thing f they were right, markets would leap up. instead they go down. and every time the growth data comes out and says oh, growth is bad, markets go down. so the markets are turning their back on-- . >> rose: markets are saying we want growth. >> we want growth. you want you to be able to pay your business. that wouldn't be true if you were greece. sorry to keep picking on greece but that is the example in everybody's minds right now. >> rose: we don't want to be greece they say. >> right. the other thing that happened that i think people don't quite realize is there ended up being what i called a least ugly contest. so spring of 2010, everybody is coming out of the crisis, the worst of the crisis but the eurozone and greek cries
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sis just starting. and there a meeting of the economic officials of the g-7 countries in absolute northern canada, middle of no where. and they are all in this, even the reporters aren't there, they are in this little eskimo hut basically, i've seen the pictures and in their echo-- ecochamber. the germans say yeah, we need to tighten our belts. and the japanese officials say yeah, we've been on the wrong side all these years work, we have to tighten our belts. the u.s. officials say we are doing our part. the british officials say we don't want to be the least tightening. and so in 2010, 2011 a whole bunch of the rich governments around the world all sort of tried to outdo each other in austerity. >> rose: here's george osborn the form-- this is a a political colleague of david cameron and the chancellor of the exchequer. here it is. >> look, obviously you got your own decisions to make about your fiscal problems. and your competitiveness issues and obviously your president and your congress
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are engaging in that at the moment. but in the u.k., we have done thal. we have got ahead of the curve. and you can see in measures, for example, of how competitive global economies are, that the u.k. is steadily becoming more and more competitive. >> rose: there you g more competitive. >> that's absolutely completely false. i mean the simplist two measures of competitiveness are how much net exports do you have, like you said the germans have been pretty good at. the pound went down a lot in 2008. net exports haven't come up very much. that's the point is they have this big cost advantage and now we have had 2, 3 years of the cameron economics. and the net exports don't go up at all. i mean they fundamentally failed. if they want to be competitive, they fundamentally failed on that. they haven't delivered. it's hit exact opposite effect. >> rose: but am i right that in some consideration of this balance debate between growth and austerity, making sure you don't eliminate growth, make sure you don't have too much austerity reasons right. >> rose: that it tilted back towards growth in terms of most european countries? >> well n this case there
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are facts out there. so the question is how much are governments prichbd at sectors being asked to cut back in these industrie industries-- countries. and germany has, and some of the other rich northern european economies have eased up a little in their demands but in spain, in ireland, in portugal they are undergoing very large cutbacks in public spending. >> rose: those are the plateses in the worst shape. >> well, but those-- . >> rose: the question is -- >> but if it is a cause and effect, right. >> rose: the north is better off than the south. >> but spain and italy, spain and ireland were actually doing better in terms of long-term track than the north for several years. they probably were overheating. a lot of it was real estate boom but in the end, it's in the clear that the austerity isn't making them worse rather than better. i mean so they're crushing wages, they're not investing. spain, great example. spain had great productivity growth in the 2000 until the crisis hit. they waste a lot of money on being houses, fine. they actually unlike britain
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have a pretty competitive export sector. their exports have gone up, fine. but bottom line, some of austerity there is no corporate investment because financial conditions are so tight, small businesses can't get credit and there's no investment in human capital meaning half the people who are going to the university are dropping out because young people can't afford it to go to university. >> can banks lending money to small businesses. >> no, they're not. >> rose: because why. >> because what happens is there is a feed through. we were talking before about markets in the u.k. there is a foodthrough that even if the central bank makes a lot of money available, the private banks then have to decide what projects they're willing to take risk osable if they are scared to take risk they charge higher interest raitts or refuse loan application. and one of the key factors in how scared they are to take risks is partly how well regulated they are. the other part is what are the growth prospects. so just like the bond markets are giving a thumbs down on too much austerity, its banks in spain and portugal and ireland are saying growth prospects are
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lousy. future investment prospects are lousy. there's no point in my lending to a new business it will probably fail and that becomes self-fulfilling. it is the sort of keynesian panic, you are trying to stop things from feeding back on themselves. that's what the game is about. >> brings us to the united states. >> indeed. >> rose: where are we? >> we're okay. we're not great, but we're okay. so the forecast i would make and a couple of my colleagues at peterson would make independently, of the same, is growth is going to be pretty good this year, next year, again assuming that politicians don't blow us up. you know, 3% growth. which is pretty darn good. is it a strong as the kind of recoveries the u.s. normally has in recession especially after this big recession, no, it's weaker than that and as a result, unemployment isn't going to come down very quickly. but it is positive solid growth. things that the federal reserve have done are feeding that growth. you can see that in the housing market which is going to am come back, is
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already coming back. the government i think rightly has tried to steer middle course between too much austerity and too much spending. i like christie roamer and some others would have liked a bigger stimulus up front two years ago. three years ago. >> rose: 1.3 trillion or something like that. >> well, yeah, something on the, well above 1 trillion would have been good given that the state and local governments were cutting back at the same time. but that's water under the bridge now. and now that we are growing again, and there are long-term issues, you know, it's okay that we're going to be having a small consolidation betweening there is going to be some cutback. i think you have to give some credit. i don't know how it came out this way. i wasn't in the room. but what the obama administration and the congress agreed on, people talk about as a really bad deal but it's actually a pretty good deal. >> talking about the most recent one. >> the most recent one, sorry to be unclear. the stuff that came out in january to avoid the sequester and all that. >> it's to me-- .
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>> rose: the republicans think thats with a win-win for the president. >> i think win-win is right. i think-- . >> rose: the president. >> i think-- . >> rose: they don't think it is a good deal. >> i think it is a win-win for the american people, broadly speaking because two things happened. first is we said that one of the big things that is driving us to deficits is messed up health-care system. the other thing is simply for years now going back to 2000, we have had about a 3% gap on average between how much the federal government spends and how much we tax. and you have to close that gap. you can't keep doing that year after year. and this does constructive steps towards that. by putting back up the payroll tax, by raising the taxes on the highest income americans. you're taking about, a little over 1% of gdp. closing a big chunk of that and some of the spending cuts that are already in training which are going to be added to frankly from here, the next negotiations about spending cuts, whatever the president says, you know, we're going to end up i'm feeling by the summer having made a permanent cut in that gap , of 2%. >> right. >> and that's one half of
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that gap. that's i mean it's not excessive use ferrity. it certainly doesn't fix the health care. but it buys, it's not kicking the can down the road either, that's unfair to it. it really makes a material dichbs for years to come. >> so the president i think and everybody else i'm asking this, believe that what we have to do is get $4 trillion over the next 10 years. >> what. >> and we do that by some combination of tax revenue increases and reduction of spending. >> and you know, i think-- . >> rose: and the president, according to some, doesn't believe this is a spending problem. he believes it's really more of a revenue problem. >> i think that both completely misrepresents what i understand the president and his advisors to believe. and i think also somewhat represents the mis-- misrepresents the reality. >> rose: another question about the president, they have a $1.5 trillion so they need to find another 2.5, right. >> right. >> rose: where would you find it? >> you're going find something, over ten years
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we're talking aboutment you're going to find probably something on the order of half a trillion by closing loopholes in the tax code. it's to the going fix everything but it has benefits because it's actually efficient. you can find, depending who you ask, but half a trillion and a trillion in defense cuts that wouldn't hurt our national security. >> rose: would republicans ever agree to that. >> i'm not a politician. >> rose: let's a's assume you get that, that gets to you 3. you do, you hope, i would hope if i was an economist trying to do the right thing, not a politician, you would hope you would raise taxes on certain forms of energy, which is good for the environment. >> rose: a carbon tax. >> some form of carbon tax, federal gas tax is going up a bit. something like that. you can get another few hundred billion a year out of that. that gets you up to 3.5. the last trillion is where the rubber meets the road. i think all of that, maybe dems and republicans wouldn't automatically admit they would be willing to do it but all of that is within
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the realm of reason. the last trillion is the hard part. because then you're making very tough choices about which specific taxes to raise versus which specific spending cuts. >> rose: what choices would you recommend the country make. >> in my opinion and i do work some with the congressional budget office, although they are nonpartisan, this is just my opinion. i would make four or five big choices. i would, indeed, put up some sort of carbon tax. and for the sake of call all of us and future generation. >> rose: the congress went crazy over cap and trade. >> cap and trade is a crazy thing to doment but also, also, frankly, the world has changed. i mean it's a lot hotter now and people are noticing that. sandy wasn't an accident. people are noticing that. cars in and automobile industry are shifting, people are noticing that, we have liquid natural gas, people are noticing that. >> rose: global warming therefore we should expect more sandys. >> absolutely. i means that's what the exports say and they seem perfectly credible to me. so anyway first thing is big carbon tax. second thing is go on the
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larger end of the defense cuts. i'm not a defense expert but people i read and respect suggest you can do more. we have a nuclear deterrent, an air force, we don't need to do quite as much as we are doing. >> rose: there is a slight issue there, i would assume, because people you read and respect, somebody might say well i read and respect a different group of people, in terms of defense cuts. >> absolutely. you asked me what was my opinion. >> rose: rit. >> but i want to be clear. it's not like-- my undergraduate job when i was in college was to work for the late samuel huntington who was a great advocate of a strong national defense for the u.s. i'm not looking for unilateral disarmament here. but anyway i'm just saying, you ask me where to make the choilss i would be at that end of that. i think we should still increase the wealth tax. excuse me, way, the wealth tax, the estate tax basically. i think there are some things it that can be cut. >> rose: there is a proposal already. >> there are proposals for that that is another thing people are very sang ree, they talk about small business, they talk about farms there are-- family farms there are ways of
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getting around that. thomas jefferson, you know, was talking about having a good strong wealth inheritance tax going back 250 years ago. so you need that. >> rose: he had no wealth. >> yeah, month chel owe is pretty nice. >> rose: but he died broke. >> fair point. but again, and a particular hobby horse of mine which frankly i don't think has prospects in the near term, is i think we need very aggressive different kinds of real estate taxes. because this is about a separate issue. this is about the boom and bust wes have in society. and that's in the u.s., u.k., everywhere. people want to damp those down. >> rose: okay. people used to argue about some kind of sales tax o or-- value added taxment. >> i think that is a pretty legitimate way to go. >> rose: what can you get from that. >> you get a lot. let's say, for example, we think of state tax they vary anywhere from 4% to 10% whatever it is. so imagine we did a 3% national tax. roughly speaking, say 7 trillion dollars a year
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would be subjected to that tax. and so 3% of that is another $200 million-- $200 billion, excuse me. >> rose: how close are you now. >> that gets you up to four, i don't know if you can get-- . >> rose: is four enough. >> close enough for government work. and then you have to evaluate. that's the other thing about these discussions. going back to what we were saying about the u.k. it depends how fast we grow in the future. if it turns out we are in a growth slow dodge then we do have to cut back more. if it turns out we get another technology revolution like we did with the internet, then we have to cut back lessment i think it's fair to do a lot now but not too much, in 5, 7 years reevaluate where we stand. >> rose: but you want to get us on a growth trajectory. >> and i'm-- . >> rose: that is your primary goal. >> that is my primary goal, growth trajectory in a sustainable way, that doesn't lead to huge debt, doesn't depend on huge debt or inflation. >> rose: how different is what you propose from what bowles simpson was. >> actually not that different. i mean, i think one of the key things that came out of the bowles simpson discussion was the idea of
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what i call the simpson bowles ratio, that it's a question of how much is done through spending cuts versus tax increases. and bowls simpson said we want it 2 for -- two times as much spending for every tax increase. and i think, frankly, the obama administration is going to come out of these negotiations well above that floor. meaning there is going to be-- . >> rose: 3 to 1. >> i think between 2.5 and 3 to 1. which is a big number. and it means that they're giving a lot on the spending side. and i personally might think you could play with that a little. but as a signal of the markets and there is a fair ground for republicans to come to, they can say yeah, well i did raise tax but i got $2.50 cut in spending for every dollar without. >> take a look at this. this is your friend george osborn talking about bowles simpson. >> i thought the plan that bowles and simpson put together looked pretty balanced. it is actually strikingly similar in many kpob ents to the british plan about the same balance, tax tax and spending and about the same
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very similar proposals on corporate tax reform and the like. so i think, i don't think you can do-- you can deal with these large deficits solely by spending cuts. i think there has to be a tax element but i think if you make the tax element too big, then you damage the competitiveness of the country. and we in britain have basically about 80% of the effort has come through spending cuts and entitlement reform and about 20% has been taxed through a consumption tax increase. >> rose: yeah. so 9 chancellor is i any wrong on the boulses simpson comparison in three counts. first is simpson bowles, sorry put it that way. in line with what you were just saying is a proposal for what you do over a ten year period. osborn, prime minister cameron wanted to did it in four or five years. second is we were talking about spending tax ratio between 2.5, around 2.5 in terms of spending cuts versus tax rises. he said 4 to 1 is what he
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was trying for. he's actually gone higher than that. and then you're really cutting bone through muscle into bone, not fat. third thing is scale. >> the u.k. for reasons that have to do with them, the current government not wanting to face up to the problems of the banking system and force losses there, ends up with having, ends up feeling they have to cut more than they probably need to. so yes, he's saying something that's sort of become accepted that you, on balance, don't want to raise taxes too much which i agree with any reasonable economist agrees with, but on the specifics he's misleading. >> adam posen is president of the peterson institute.
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>> i gotta tell you, you people >> hi! i'm lese

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Charlie Rose
PBS February 12, 2013 12:00pm-1:00pm PST

News/Business. (2013) CEO Jay Fishman, Travelers; Adam Posen, president, Peterson Institute for International Economics. (CC) (Stereo)

TOPIC FREQUENCY Us 18, U.s. 9, Greece 7, Spain 6, Britain 5, George Osborn 4, Peterson 4, Washington 4, U.k. 4, England 4, America 4, Adam Posen 3, Paul Volker 3, Germany 3, Ireland 3, Warren 3, Osborn 2, Aig 2, Obama Administration 2, United States 2
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